Posts filed under ‘Economy’

You are forgiven if you have mistaken the media’s coverage of the upcoming meeting of the Federal Reserve’s Open Market Committee on Tuesday and Wednesday for the plot line to a Lifetime movie; “Will they or won’t they? Can they and should they?” But there is no mistaking the importance of the decision of whether or not to nudge interest rates higher or the impact it may ultimately have on your credit union. If the Fed gets it right, it will, at the very least , enable you to get a bit more of a return on your loans and investments. If the Fed gets it wrong, it will hasten the onset of another recession.

What makes the decision so perplexing is that the economic signals being sent are so contradictory. For example, last Tuesday the Census Bureau reported the most positive economic news that anyone has heard in years. Real median income increased by 5.2% for American households between 2014 and 2015 to $56,516, an increase in real terms of 5.2%. This is the first increase since 2007, the year before the onset of the Great Recession. In addition, the report indicates that all income brackets and regions in the country experienced increases. Combine this news with a falling unemployment rate and you can easily conclude that the Fed may have waited too long to raise rates and could easily lose control of inflation if it doesn’t act fast. In fact, a report released on Friday by the Department of Labor indicates that, depending on what inflation measure you use inflation is on the rise. The Core Consumer Price Index, which excludes volatile items such as gas, has risen 2.3% in the past year, well above the Fed’s 2% inflation target.

So raising interest rates is a no brainer, right? Not really. Take, for instance, the falling unemployment rate. Even as the job market is tightening there are signs that employers are still uneasy about taking on new job seekers. According to the WSJ “about 300,000 fewer people are being hired each month compared with the pace reached in February.” There are a lot of jobs that are going unfilled.

And if economic growth is reaching into households then why is almost half of the American public contemplating voting for Donald Trump? His doom-and-gloom portrait of an America in decline wouldn’t have any traction if people felt confident about their economic well-being.

And the spike in the household income only partially masks larger trends that are continuing to dampen enthusiasm for consumer spending. For example, the same census Bureau also reported that a growing number of Americans have health insurance; but does anyone really believe that healthcare trends are headed in the right direction with so many major insurers pulling out of the healthcare exchanges and costs continuing to rise?

Finally income and equality is continuing unabated. The Bureau reports that since 1993 it has increased 5.5% and was unchanged by the household income gains.

What all this means is that there are many crucial questions to which we won’t have answers until we are still enjoying the fruits of economic growth or tiptoeing towards recession.

In case you missed it, on Thursday, outdoor clothing retailer Eddie Bauer announced it was a victim of a data breach involving point-of-sale credit and debit card transactions between January 2 and July 17, 2016. And here you outdoor types thought your biggest worry was the Zika virus. Here’s the good news.

The general public has clearly caught on to the fact that merchants and not financial institutions are often the parties responsible for the data breach. Why else would Eddie Bauer explain that the security of customer information is a “top priority” and that they have been working closely with the FBI and cyber security experts to resolve the issue?

It wasn’t too many years ago when the merchant playbook was to barely acknowledge that a breach occurred let alone suggest that it bore some responsibility for mitigating its effects. I’m in an optimistic mood this morning. Now that the public understands that merchants share in the responsibility to protect data breaches it should be easier to convince legislators that merchants should pay their fair share when it comes to the costs imposed on card issuers every time a store is breached.

Get off of my cloud. I’m dreaming?

Uber Class Action Settlement Rejected

With apologies to those of you who hate football metaphors, the various pending lawsuits against Uber are the legal equivalent of a hurl into the end zone with time expiring. That being said, those of you hoping to derail ride sharing, or at least put it on equal footing with the traditional taxi industry, received at least a temporary stay of execution last week when a federal judge threw out a proposed settlement of a class action lawsuit alleging that ride sharing services were violating the labor law by treating drivers as independent contractors as opposed to traditional employees.

According to the Washington Post, U.S. District Judge Edward Chen concluded that the proposed $100 million settlement was only 10% of what lawyers for the drivers estimate that Uber could owe them and provided only $1 million towards state penalties that could add up to more than one billion dollars.

This lawsuit against Uber is absolutely critical. If a precedent is established imposing traditional labor obligations on Uber then the ride sharing model crumbles quicker than a Ryan Lochte robbery allegation. By the way, the proposed settlement is yet another great example of the class action system disproportionately benefitting lawyers, precisely when the CFPB is on the verge of institutionalizing such litigation.

Where Has U.S. Productivity Gone?

It is an article of faith among politicians, along with truth, justice and the American Way, that America has the most productive workforce in the world. This may still be true, but Federal Reserve Vice Chairman Stanley Fisher used a speech on Sunday to highlight worrying signs that something is going wrong with productivity. For example, business productivity has declined for the last three quarters, its worst performance since 1979. Furthermore, output per hour increased only 1-1/4 percent per year between 2006 and 2015 as opposed to gains over 2 1/2% per year between 1949 and 2005.

Why does this matter? For one thin we won’t see the economy really takeoff as long as productivity is sluggish and your members won’t be seeing meaningful wage. Furthermore, a long-term decline in productivity translates into greater wage inequality. The Vice Chairman would like to see Congress do more to stimulate the economy. I would like to see the Yankees make the playoffs. Both events are theoretically possible, but highly unlikely.

In case you missed it, on Thursday, outdoor clothing retailer Eddie Bauer announced it was a victim of a data breach involving point-of-sale credit and debit card transactions between January 2 and July 17, 2016. And here you outdoor types thought your biggest worry was the Zika virus. Here’s the good news.

The general public has clearly caught on to the fact that merchants and not financial institutions are often the parties responsible for the data breach. Why else would Eddie Bauer explain that the security of customer information is a “top priority” and that they have been working closely with the FBI and cyber security experts to resolve the issue?

It wasn’t too many years ago when the merchant playbook was to barely acknowledge that a breach occurred let alone suggest that it bore some responsibility for mitigating its effects. I’m in an optimistic mood this morning. Now that the public understands that merchants share in the responsibility to protect data breaches it should be easier to convince legislators that merchants should pay their fair share when it comes to the costs imposed on card issuers every time a store is breached.

Get off of my cloud. I’m dreaming?

Uber Class Action Settlement Rejected

With apologies to those of you who hate football metaphors, the various pending lawsuits against Uber are the legal equivalent of a hurl into the end zone with time expiring. That being said, those of you hoping to derail ride sharing, or at least put it on equal footing with the traditional taxi industry, received at least a temporary stay of execution last week when a federal judge threw out a proposed settlement of a class action lawsuit alleging that ride sharing services were violating the labor law by treating drivers as independent contractors as opposed to traditional employees.

According to the Washington Post, U.S. District Judge Edward Chen concluded that the proposed $100 million settlement was only 10% of what lawyers for the drivers estimate that Uber could owe them and provided only $1 million towards state penalties that could add up to more than one billion dollars.

This lawsuit against Uber is absolutely critical. If a precedent is established imposing traditional labor obligations on Uber then the ride sharing model crumbles quicker than a Ryan Lochte robbery allegation. By the way, the proposed settlement is yet another great example of the class action system disproportionately benefitting lawyers, precisely when the CFPB is on the verge of institutionalizing such litigation.

Where Has U.S. Productivity Gone?

It is an article of faith among politicians, along with truth, justice and the American Way, that America has the most productive workforce in the world. This may still be true, but Federal Reserve Vice Chairman Stanley Fisher used a speech on Sunday to highlight worrying signs that something is going wrong with productivity. For example, business productivity has declined for the last three quarters, its worst performance since 1979. Furthermore, output per hour increased only 1-1/4 percent per year between 2006 and 2015 as opposed to gains over 2 1/2% per year between 1949 and 2005.

Why does this matter? For one thin we won’t see the economy really takeoff as long as productivity is sluggish and your members won’t be seeing meaningful wage. Furthermore, a long-term decline in productivity translates into greater wage inequality. The Vice Chairman would like to see Congress do more to stimulate the economy. I would like to see the Yankees make the playoffs. Both events are theoretically possible, but highly unlikely.

I’ve written extensively about the hazy state of pot regulation in this country and how it has virtually paralyzed credit unions and banks that might otherwise be willing to provide services to pot businesses. So I think it is worth noting that sometime today, the DEA will reportedly be rejecting a high-profile petition seeking to remove Cannabis from the Government’s most restrictive drug classification.

New York is one of approximately half the states in the Nation and the District of Columbia that has voted to legalize marijuana to one extent or another. But banks and credit unions have been justifiably reluctant to provide financial services to pot businesses. This is because marijuana remains unequivocally illegal under the federal Controlled Substances Act. In fact, pursuant to the Act, the DEA classifies marijuana as a Schedule I drug, its most restrictive classification. Critics have argued for decades that this restriction makes it almost impossible to perform the type of scientific research that would determine what medical benefit, if any, pot has.

As explained in this analysis by the Brookings Institute, rescheduling would “not suddenly legalize marijuana” or “solve the policy disjunction that exists between states and the federal government on the question of marijuana legality.” Those same researchers noted, however, that a successful rescheduling petition would have effects on drug policy since it would be interpreted as recognition by the federal government of accepted medical uses for marijuana. This is why advocates ranging from U.S. Senators to the National Conference of State Legislatures have endorsed rescheduling.

On a practical level, such a shift may have allayed the fears of regulators who are reluctant to allow financial institutions to enable pot businesses to access the Federal Reserve Banking system. The decision leaves the status quo intact. The next big event in the pot wars will come when the Court of Appeals 10th Circuit rules on an appeal from a state-chartered credit union in Colorado that was denied access to the Federal Reserve System and Share Insurance by the NCUA.

America’s Uneven Housing Recovery

Another issue which I have obsessed about in this blog is the state of America’s housing market and the causes that may lie behind its relatively sluggish rebound during this so-called recovery. Lest you think these are just the concerns of a curmudgeonly blogger with a glass half-empty perspective, you should read the lead story in today’s Wall Street Journal, which explains that the recovery that began in 2012 has “left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans.” This is not an op-ed penned by Bernie Sanders, but a front page article that is worth a read.

The Bureau That Never Sleeps is at it again! On Friday, the Bureau released proposed amendments to its “know before you owe” TRID regulation, which took effect in October of 2015. I’m going to dub these proposed changes Death Wish classics because some of the amendments are so technical that the only way I am going to get through them is to drink Death Wish coffee, which for the uninitiated, makes Starbucks taste like your mother’s Chock full o’ Nuts.

At first glance, it doesn’t seem like there are any major changes. But there are several proposed amendments and clarifications including extending TRID’s coverage to all co-op units; clarifying the applicability of tolerances in early disclosures; and clarifying information that can be shared with third parties without violating a consumer’s privacy. According to this morning’s American Banker, this last one was put in at the urging of the National Association of Realtors. This is one to have your mortgage person take a look at.

Economic Growth Declines

Those of us of the opinion that the economic glass is half empty received further support for our negativity with the release of news on Friday from the Commerce Department that the U.S. economy grew at a seasonally adjusted annual rate of 1.2% in the second quarter. According to the WSJ, this means that economic growth is now at its weakest level since 2011.

The thing that really perplexes me is that business investment declined for the third straight quarter. American corporations are sitting on a record pile of cash. For years, optimists have been waiting for businesses to start spending some of this cushion and really jump start the economy. Wouldn’t it be something if business sits out an entire period of economic growth without making any sizable investments other than to buy back their shares?

As I scoured this morning’s clips for news you could use to start your credit union day I settled on an article that reminded me of one of my favorite movie quotes courtesy of Prince Faisal: “virtues of war are the virtues of young men – courage and hope for the future. Then old men make the peace, and the vices of peace are the vices of old men – mistrust and caution.”

A bit overstated for a credit union blog? You bet but an analysis in this morning’s WSJ pinpoints yet another reason why the economy continues to underwhelm even as the jobs market continues to grow: Young people are a heck of a lot more optimistic about the economy than Baby Boomers. According to the WSJ: Americans 55 of years of age and older have pulled back on their spending over the last year while younger Americans have been spending more. As a result “All the growth is being driven by young people, and in fact the older people are dragging down growth,”

According to the paper, this divide, “helps explain why consumer spending decelerated in 2015 and early this year despite low-interest rates, cheap gasoline and falling unemployment.”

It seems to me that this is yet another great reason why your credit union should be trying extra hard to attract younger people into the fold.

Remember that about 70% of the economy is driven by consumer spending so a growing divide in economic perception could have a big impact on the economy. It’s great that not everyone is hording their cash but these young optimists simply don’t have the spending that the Baby Boomers do. Millennials are carrying record amounts of student debt, for example and this might be one reason why they are holding off from buying that first house.

Is it Time to Make More Private Student Loans?

Since we are on the subject of debt and young people, did you know that n the first quarter of this year the percentage of private student loans that were at least 30 days past due dropped to its lowest level since the Great Recession but that, lending growth remains flat according to the American Banker? Here is another factoid: Lenders have learned some lessons and are taking more precautions. During the 2015-2016 academic year, 89.7% of private student loans were co-signed, usually by a family member. During the 2008-2009 school year, only 74.6% of private student loans were co-signed.

I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.

The legislation is a federal attempt to address elder financial abuse. Most states have already mandated reporting requirements in this area. New York’s DFS has issued a guidance on the issue. NY law protects any person who reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency based on a good faith belief that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney). This protection isn’t quite as expansive as what would be protected under the House bill.

I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected criminal activity involving financial exploitation; and the issues raised are best handled by family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.

The bill, which passed with overwhelming support on Tuesday, would authorize supervisors, compliance and BSA officers to report possible financial exploitation of a person 65 years of age or older to law enforcement and government agencies. The institutions and individuals making these reports would get legal immunity for doing so if they train employees on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.

There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer and BSA officers to report suspected elder abuse but enables any employee to spot it. One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse the ultimate call on reporting should be made by senior personnel.

Second it places no affirmative obligation on financial institutions to report suspected abuse. it simply protects them if they choose to do so provided they have appropriate training.

Finally, it provides a baseline of immunity for institutions that report suspected abuse.

A Most interesting Jobs Report

Any minute now we should be getting the jobs report for June. It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing, the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.